How To Advertise Your Business
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How to Advertise for Small Business
How to advertise for your business can be a difficult topic to master without the right tools and knowledge.
To begin the learning process, seeing your business in numbers makes your decision-making a lot easier.
I find maths hard but it’s generally harder to separate your emotions from your business than it is to use a calculator.
How emotionally tied we are to our businesses makes it very easy for bad decisions to creep in, even if you think it’s a good decision at the time.
Professional business owners just let the numbers decide. Let’s get started…
If you don’t know these very important numbers for your business, you’re throwing money away when advertising for your business every day.
But when you do know them, you can start to make informed predictions about your business.
The professional business owners that make it, know these numbers inside and out.
The business owners that end up failing most often don’t.
You can answer a lot of questions you have about growing your business in general as well as advertising for your business, just by knowing these few numbers.
You’ll start to feel the magical potential of your business when you start using them.
If you don’t understand these numbers before you start trading, you are disadvantaging yourself.
When you don’t know them before you start advertising for your business, you won’t know when or how much money your advertising is making you or which the best form of advertising is for your business.
When to Advertise for Small Business
If you’re ever wondering about ‘whether you should do some advertising’? then ask yourself this…
Is Coca-Cola currently advertising?
If they are still doing it, then you probably need to as well.
In other words, you should always be advertising
If you have more customers coming in than going out this month, you’re going to survive.
Granted, you could do things better and only focussing on this metric might not be the best long-term approach but it’ll mean you survive if your business is in trouble like 20% of businesses are at any given time.
And if you’re just ticking over like 60% at any one time are too, Henry Ford, the founder father of the Ford motor company said “Stopping your advertising to save money is like stopping your watch to save time”
(I actually did this once but need to protect the privacy of my friends in my own photo so Credit BoredPanda.com).
When Shouldn’t You Advertise For Your Business
Now I will say, that if a sudden influx of customers would mean you can’t serve them all and you get bad online reviews from a lack of responsiveness or just poor service, then your advertising needs to start after a few other basics are sorted. I can help with that quickly as well, but for the purposes of this section, I’m assuming you want more clients right now.
But even if you couldn’t cope with more clients right now, before you even started your business, never-mind before you start advertising, every entrepreneur needs to do some business maths based on what we’ll call our key business numbers.
So even if you don’t want to start getting more customers today, you need to get your head around what I’m about to teach you for the sake of surviving, not just growing when you’re ready.
What You Must Know Before Advertising For Business
Knowing these numbers will enable you to assess whether any advertising you do makes you money or loses you money overall based on YOUR business model, and it will enable you to prioritise the more profitable advertising options available to you at any given time.
And if you haven’t started your business yet, you can use some conservatively hypothesised projected numbers to give you a starting point.
You change these numbers monthly anyway, when you review them.
So without further ado, for our business in general we need to know;
How Much a Customer is Worth to You
Q 1. How much will an average customer spend with your business over the entire life of that customer? or in the next 3 years if you don’t know how long a customer stays with you?
This is your customer lifetime spend. Write the number down.
LTS = £
How much will you spend roughly in servicing that one customer in that period? Lifetime cost.
You can alternatively (if you have company accounts over a few years) just take the total sales £ minus your advertising and cost of sales £ and divide it by number of customers acquired in that same time period.
This figure you get is the important one. It is what each customer is worth to you in £.
Your Lifetime Customer Value
This is known as lifetime value. (LTV)
Let’s say its £1000 (£333 per year, just £27.75 per month)
Q 2. How much of that amount are you prepared to spend on acquiring a new customer?
Before you answer that, because you’ll instinctively think, as little as possible, be aware that you want to be able to increase this number. You want to be able to spend more money once you discover how to advertise for your business properly. By always working on increasing your LTV and you may already have additional insights based on extra services you’re going to introduce to achieve that which will mean you can spend more, because at any given time you should be very happy to spend 33% of LTV to acquire a customer.
Calculating You Customer Aquisition Cost
The figure you spend is called your customer acquisition cost (CAC).
In this case our Happy CAC= £333
To calculate what your actually CAC currently is, (and it’s probably a much sadder CAC), take all your marketing and sales costs and divide them by the number of customers you got in the same period.
No customer is free to acquire. You have a phone line, and a website and how much admin time do you spend on new customers? Your time is worth a minimum £10 an hour right? Don’t make the mistake of thinking that any customer is free. Next we need to know…
What’s Your Sales Conversion Rate?
Q 3. If 3 customers contact your business (and call 2 other competitors at the same time, to get 3 prices or quotations for example), how many become your customer? Out of every phone call you receive, how many people pay you money?
Lets say 50% do. That’s really good by the way. When you think about it, statistically you should only get 1 in 3 so you should probably increase your prices.
But in this case your ratio is 2 leads : 1 customer.
Calculating Your Maximum Cost Per Lead
If we divide our happy CAC by our number of leads, that means you can spend £333 divided 2 = £166.50 per lead.
Your cost per lead can be as high as £166.50.
That’s quite a lot of money isn’t it.
Even if you were purely online and had an average conversion rate of click through to leads to sale of 20%, so only 1 in 5 people downloaded your free guide and then went on to buy something later, you could still spend £33.30 per click to acquire a customer.
How Many Customers Could You Handle Next Month?
Write the number down…
Target New Monthly Customers =
How many leads do you need to get those customers based on your ratio? Our answer to q.3 multiplied by our target…
Target Leads =
What Should My Business Advertising Budget Be?
Multiply target leads by cost per lead and that’s how much to spend on advertising next month.
That’s your 1st Magic Number.
But man, that took a long time. I could have taught you 10 more things on video by now.
And don’t get carried away yet. You shouldn’t do any advertising without tracking it…
How Do I know if my Advertising is Worth the Money?
Business Income i.e total money in £
Business Expenses i.e total money out £
Income- expenses i.e profit £
Our Profit in £ divided by our income £ x 100 equals our profit margin %.
How much could I spend on advertising as my business grows?
After we get that number for your business, to always know that each advertisement is making us money, we need to keep one figure in mind.
It’s called our break-even revenue over ad spend. (Break-even ROAS)
Each advert has to achieve this minimum. It’s not earning you anything but it isn’t costing you anything. It is calculated as a percentage and it is directly proportionate as follows; it’s 100 divided by your Profit margin (%) number x 100.
So if your business has a 90% profit margin. i.e it costs you £10 to deliver a £100 product/service then your break even ROAS is 111.11%.
If it costs you £50 to deliver a £100 product/ service then break even ROAS is 200%.
Ultimately, we want to aim for a roughly 4 x ad spend (400%) ROAS.
Understand How to Advertise for Business
Based upon how our website/ sales process converts the people which our advert exposes us to (because an advert is for eye balls but it’s your business’ follow up that earns you money), following the advertisement, once we have our conversion numbers…
We want to figure out exactly how much we can afford to pay for a form submission on our website or for someone’s contact details taken over the phone.
Learn How To Do Pay Per Click Advertising for Your Business
This is especially important for pay-per-click advertising like Google Ads for example (Facebook ads and Youtube ads are similar too). But Google ads are typically the best way to test the viability of a business or to quickly and simply get customers through the door in the simplest and most efficient way or most businesses.
We also want to know how much on average we make per click (this is hypothetical because only a % of clicks will convert but knowing the average across them all is beneficial).
Over a 30 day period we want to take the ad-generated revenue total and divide it by the total number of clicks to give us our average revenue per click. We can then compare that to our cost per click to see whether the keyword is profitable.
We then block any unprofitable keywords to optimise our adverts and save money/ re invest it in the better performing keywords.
In order to know our revenue over ad spend and our revenue per click we have to have conversion tracking in place on our advertising.
You should never do any advertising unless you set up a way to track it.
This is imperative for getting results with platforms like Facebook.
We set this up on the back end of our website. It’s quick and simple and you can copy me click by click.
Armed with this new knowledge, we’re then in a position to profitably advertise all the time and click a couple of buttons to increase or decrease our advertising spend according to our business needs and operational constraints.
More income becomes as simple as turning a tap.
Of course, optimising your advertising spend then allows you to increase your profits as does controlling your operational costs and making your business more efficient.
Both of which I can help you with in a very simple to follow, systemised way.
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